Design Firms Sustain Healthy Revenue Growth During 2013
Revenue from design work continues its modest upswing, according to an annual survey of top design firms conducted by ENR California and McGraw Hill Construction. The 109 participating firms collectively produced $3.66 billion of design work on projects located in California during 2013, an increase of 5% over the previous year. But design firms will face an increasing level of difficulty in finding the staff needed to meet the demands of California's infrastructure and water needs, say respondents.
"The state's aging infrastructure, current drought conditions and the ripple effects on energy supply and demand all present opportunities for our industry and government to come together to solve these significant challenges," says Jim Zaniboni, excecutive vice president and California district general manager with AECOM in San Francisco.
Staffing Wars
Design firms are augmenting staff levels to meet the increased work load. Firms participating in the survey reported a total of 5,098 licensed architects and engineers on their payrolls, an increase of nearly 3% from the previous year's survey.
New York City-based Arup, ranked seventh in revenue among design firms working in California, forecasts double-digit growth in both revenue and staffing. "We will continue to recruit a significant number of new graduates, aligned with our long-term goals and practices, and we are continually seeking more diverse graduate intake," says Andy Howard, Arup Americas COO. "But there is a war for talent, diversity and language skills for seasoned and experienced project-delivery people."
Charlie Downs, senior principal with Sacramento-based Architectural Nexus, says recruitment is "the single biggest challenge facing our firm as the economy improves. There has been a significant readjustment of human resources in the design industry in which many affected staff have moved out of the area or have left the profession entirely, as we've seen with CAD staff." Discouraging job prospects during the recession reduced the number of young people entering the design fields, which is now exacerbating current shortages, he adds.
Tight profit margins dictate the need for designers to wear many hats and use technology to maximize productivity. "Fees today will not support two staff members, such as an experienced practitioner sketching by hand and a recent graduate who has a high level of skill with technology but doesn't know what to model," says J. Peter Devereaux, president of Harley Ellis Devereaux in Los Angeles. "Fees demand that we find one person who can combine those skills to deliver what is required."
While the major urban centers enjoy an ongoing growth cycle, large-scale rural projects such as high-speed rail and natural resource extraction are spurring some firms to open branches in the interior of California. Revenue generated from the petroleum sector jumped 42% during 2013, for example. However, if and when the high-speed rail project is completed, the region may not produce sufficient new project opportunities to support all of these new firms, says Michael D. Knopf, president of Roseville-based Quad Knopf.
Natural Disaster in Slow Motion
As the drought deepens, collateral effects are rippling throughout California. "Rural communities could literally be wiped out by drastic cuts in farm labor and harvesting," Knopf says. "Policymakers who have bought into the notion that conservation is sufficient to address the water issue for farmers and still divert all the water to meet environmental objectives simply do not understand agriculture in the Central Valley."
Attitudes among state officials seem to be shifting in favor of more investment in water infrastructure such as water-recycling plants, pipelines and desalination plants. But, "because those policy discussions and negotiations are under way, there is a level of uncertainty that exists," says Brian Jordan, director of global corporate development for MWH Global in Pasadena. "Ultimately, a combination of supply- and demand-side investments and strategies will be needed."
Many firms are also benefiting from design work to replace California's aging infrastructure. Firms reported $935.4 million in revenue associated with transportation projects in 2013. Revenue from power-related projects rose 17%, while sewer infrastructure projects jumped nearly 50%.
But—as in the rest of the U.S.—there isn't enough public money to fund all of California's required work. "Financial challenges for public agencies continue, and alternative delivery, such as design-build and public-private partnerships, represents a growing market over the next several years," says Teri Zink, West regional business manager and senior vice president of Parsons Brinckerhoff, San Francisco. "We believe that as public revenues rise due to an improving economy, the market will improve."
Designs centered around alternative funding sources can help public owners and utilities balance expenses with revenue streams, says Kristen Miller, MWH business unit leader for municipal water and wastewater. "The focus has shifted from the days of conservative over-design to a much more practical and total cost analysis, bringing in not just the capital costs, but the ongoing maintenance and operational costs that our clients are faced with long after construction is complete."
California's ever-changing regulatory climate can also be fertile ground for business opportunities. "Our firm has invested a lot of time into the new Title 24 Energy Code, which takes effect on July 1," says Scott Wheeler, principal with Auburn-based Engineering Enterprise. "Our expertise in this area has already led us to successful teaming efforts." He also expects Proposition 39 to provide ample work in evaluating schools for potential energy savings.
